MODULE 3

Subsidiary Books
Introduction
• Journal is subdivided into various parts known
as subsidiary books or subdivisions of journal.

• Each one of the subsidiary books is a special

journal and a book of original or prime entry.

• Recording the transactions in a special

journal and then in the ledger accounts is the
practical system of accounting which is also
referred to as English System.

• The double entry principles of accounting are

strictly followed.
Kinds of subsidiary books
• Purchase book – Cr purchase transactions
• Purchase return book- Goods returned by you
• Sales book – Cr sales Transactions
• Sales return book- Goods returned by your
debtor/ customer.
• Bills receivable book-Bills yet to be received
by me
• Bills payable book- Bills yet to be paid by me
• Cash book – All Cash transactions
• Journal proper – Miscellaneous transactions
Purchase book
• This book is used to record all credit
purchases made by the business concern
from its suppliers.
• This book is also known as ‘Purchases
Books’, ‘Purchases Journal’ or ‘Invoice
Book’. Particulars
Date L.F. Inward Amount
invoice (Rs)
number
 Sales book
• This book is used to record all credit sales
effected by the business to its customers.
• This book is also called as ‘Sales Book’,
‘sales Journal’ or ‘Sold Book’.

Date Particulars L.F. Outward Amount

invoice (Rs)
number
 Purchase return book
• This book is used to record all transactions
relating to the goods returned to suppliers.
• This book is also known as ‘Purchases Returns
journal’ or ‘Returns Outward Book’, the

Date Name of the L.F. Debit note Amount

supplier (Rs)

A debit note represents a note sent to the

supplier for the value of goods retuned by
the business.
 Sales return book
• This book is used to record all transactions
relating to goods returned by customers.
• This book is also known as ‘Sales Return
Journal’ or ‘Returns Inwards Book’,

Date Name of the L.F. Credit note Amount

supplier (Rs)

A credit note represents a note sent to the

customer for the value of the goods
returned by him.
 Bills receivable book
• This book is used to record all the bills
received by the business from its
customers.

Sl. Date of L.F. Drawer Acceptor Term Due Rs Remark

No. receipt date s
 Bills payable book
• This book is used to record all the bills
accepted by the business drawn by its
creditors.

S Date L Drawer Paye Where Date Term Due Rs Remark

l. of . e payabl of bill date s
N accep F e
o - .
. tance
Journal proper
• This book is used to record all the residual transactions
which cannot find place in any of the subsidiary books.
• The following are some of the examples of transactions which
are entered in this book.

1. Opening entries and closing entries.

2. Adjusting entries
3. Transfer entries from one account to
another account.
4. Rectification entries.
5. Bills of Exchange Entries
6. Credit Purchase/sale of an asset
other than goods.
Cash Book

• Cash book is a special journal in which all

cash transactions are recorded.

• Cash book shows the cash receipts and

the cash payments

• The cash book resembles a ledger with a

debit and credit sides and the balance
represents cash on hand at the end of the
accounting period.
Kinds of Cash Book

• Single column cash book

• Double column cash book

• Triple column cash book

Single Column Cash Book

Dr. Cash Book Cr.

Receipt side Payment

Side

Date Particular L.F. Amount Date Particular L.F. Amoun

s s t
Double Column Cash Book

Dr. Cash Book Cr.

Receipt side Payment

Side
Date Particular Discount Cash Date Particular Discoun Cash
s s t
Triple Column Cash Book

Dr. Cash Book Cr.

Receipt side Payment

Side
Date Particular Discoun Cash Ban Dat Particular Discoun Cas Ban
s t k e s t h

CONTRA ENTRIES
Contra Entries
1. Cash is deposited in the bank

2. Cash withdrawn from a bank

3. Cash transferred from one bank to

another bank
Double Column Cash Book

Dr. Cash Book Cr.

Receipt side Payment

Side
Date Particular Ban Cash Date Particular Ban Cash
s k s k
Petty cash book
• The word ‘petty’ has its origin from the
French word petit’ which means small.

• The petty cash book is used to record

items like carriage, cartage,
entertainment expenses, office expenses,
postage and telegrams, stationery, etc.

• The person who maintains this book is

called the ‘petty cashier’.
Petty cash book

• The petty cash book is used by many

business concerns to save the much
valuable time of the senior official, who
usually writes up the main cash book, to
prevent over burdening of the main cash
book with so many petty items and to find
out readily and easily information about
the more important transactions.
Imprest system
• In this system, the petty cashier is provided with a
sum of cash which is termed as ‘float’ after taking
into consideration the possible kinds of expenses
which would be incurred for a specific period, viz.,
a week or a month.
• The petty cashier, at the end of such period,
submits the petty cash book, with all entries
passed, to the chief cashier. The chief cashier, in
turn, will verify all the entries with the supporting
vouchers and gives the actual amount spent on
various petty items.
• This would bring the petty cash balance to the
original amount with which he has begun. This
system of maintaining the original amount of cash
as such is known as ‘Imprest System of
maintaining Petty Cash Book’.
Trade Discount v/s Cash
Discount
Trade discount Cash Discount
It is given by the manufacturer or It may be allowed by seller to any
the debtor.
wholesaler to a retailer and not
to others.
It is allowed on a certain quantity It is allowed on payment being
being purchased. made before a certain date.
It is a reduction in the catalogue It is a reduction in the amount
price of an article. due by a debtor.
It is not usually accounted for in This discount must have to be
the books since the net amount accounted for in the books since
(i.e. after deducting discount) is it is deducted from the gross
shown. selling price.

It is allowed only when there is a It is allowed only when there is

sale either cash or credit. cash receipt or cash payment
including cheques.
It is usually given at the same It varies from customer to
rate which is applicable to all customer depending on the time
customers. and period of payment.
Petty Cash Book Format
Analytical Petty Cash Book
Trial Balance

• “Trial balance is a statement containing

the balances of all ledger accounts, as at
any give date, arranged in the form of
debit and credit columns placed side by
side and prepared with the object of
checking the arithmetical accuracy of
ledger postings”.
Objectives of Trial Balance
(i) It gives the balances of all the accounts of the ledger.
The balance of any account can be found from a
glance from the trail balance without going through the
pages of the ledger.

(ii) It is a check on the accuracy of posting. If the trail

balance agrees, it proves:
(a) That both the aspects of each transaction are
recorded and
(b) That the books are arithmetically accurate.

(iii) It facilitates the preparation of profit and loss

account and the balance sheet.

(iv) Important conclusions can be derived by comparing

the balances of two or more than two years with the
help of trail balances of those years.
Features of Trial Balance
• A trail balance is prepared as on a specified date.
• It contains a list of all ledger account including
cash account.
• It may be prepared with the balances or totals of
Ledger accounts.
• Total of the debit and credit amount columns of
the trail balance must tally.
• It the debit and credit amounts are equal, we
assume that ledger accounts are arithmetically
accurate.
• Difference in the debit and credit columns points
out that some mistakes have been committed.
• Tallying of trail balance is not a conclusive profit
of accuracy of accounts.
Limitations of Trial Balance
• The trail balance can be prepared only in those
concerns where double entry system of book
keeping is adopted. This system is too costly.

• A trail balance is not a conclusive proof of the

arithmetical accuracy of the books of account. It
the trail balance agrees, it does not mean that
now there are absolutely no errors in books. On
the other hand, some errors are not disclosed by
the trail balance.

• It the trail balance is wrong, the subsequent

preparation of Trading, P&L Account and
Balance Sheet will not reflect the true picture of
the concern.
Methods
• Total Method:- according to this method,
debit total and credit total of each account
of ledger are recorded in the trail balance.

• Balance Methods:- according to this

method, only balance of each account of
ledger is recorded in trail balance. Some
accounts may have debit balance and the
other may have credit balance. All these
debit and credit balances are recorded in
it. This method is widely used.
Total Method

S. No. Name of L.F. Debit Total Credit

Account Account Total
Account
Balance Method

S. No. Name of L.F. Debit Credit

Account Balance Balance

Cash 1000

Sales 2000
Question
• From the following transactions, pass journal
entries, prepare ledger accounts and also prepare
Trial Balance under (i) Balance method (ii) Total
method.
Rs.
1. Anil started business with 8,000
2. Purchased furniture 1,000
3. Purchased goods 6,000
4. Sold goods 7,000
5. Purchased from Raja 4,000
6. Sold to Somu 5,000
7. Paid to Raja 2,500
8. Received from Somu 3,000
9. Paid rent 200
10. Received commission 100